Calcutta High Court: Moushumi Bhattacharya*, J., held that appointment of an arbitrator on the basis of contractual arbitration clause during the pendency of the matter before MSME Facilitation Council is patently contrary to the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
In the instant matter, the petitioner (supplier of services) and the respondent (buyer) entered a contract related to repair of a Wet Basin flap gate at Garden Reach Shipyard, Kolkata. Since the petitioner is a registered Micro and Small-Scale Enterprise, the petitioner made a reference under the provisions of MSME Act, 2006 before the West Bengal State Micro Small Enterprises Facilitation Council. However, during the pendency of the reference before the Facilitation Council, the respondent appointed a sole arbitrator on the basis of a clause in the purchase order. The petitioner preferred the writ petition before this Court seeking to set aside the impugned Award dated 23-09-2018 by the Sole Arbitrator.
The petitioner questioned the jurisdiction of the Arbitrator and contended that the Facilitation Council has the exclusive jurisdiction to decide on the reference in terms of the provisions of the MSMED Act.
On the other hand, the respondent denied the contentions of the petitioner and submitted that petitioner is not a ‘supplier' under S. 2(n) of the MSMED Act, therefore, the petitioner cannot make a reference to the Micro and Small Enterprises Facilitation Council under S. 18 of the MSMED Act for recovery of the amount due to the petitioner under S.17 of the MSMED Act.
Whether the Arbitrator had jurisdiction to pass the impugned Award?
Whether the Facilitation Council under the provisions of MSMED Act, 2006 have exclusive jurisdiction to entertain and decide disputes?
Observation and Verdict
The Court relied on Silpi Industries v. Kerala State Road Transport Corpn., 2021 SCC OnLine SC 439 where the Supreme Court held that even if there is an agreement between the parties to resolve the dispute by arbitration, the seller can certainly approach the competent authority if the seller is covered by the MSMED Act, 2006 for making its claim. The Supreme Court held that “…being a special statute the MSMED Act will have an overriding effect vis-à-vis the Arbitration and Conciliation Act, 1996.”
The Court observed that though the petitioner’s demand for payment of dues with reference to the work done/services rendered by the petitioner was made after the petitioner’s registration under the MSMED Act, but once the party obtains registration even after execution of the contract, the provisions of the MSMED Act would apply to supply of goods and rendering of services subsequent to the registration.
The Court held that a supplier will not be disqualified from making reference before the Micro and Small Enterprises Facilitation Council under S. 18 of the MSMED Act on the basis of registration as an MSME on the date of the contract, as long as the amounts claimed are relatable to goods supplied or services rendered after the date of registration of the supplier as a MSME under S. 8(1) of the MSMED Act.
“The date of execution of a contract between a buyer and a supplier under the MSMED Act is irrelevant for the application of the provisions of the MSMED Act provided the supplier claims recovery of the amount due under section 17 for goods supplied or services rendered after the date of registration.”
The Court set aside the impugned Award under S. 34 of the Arbitration and Conciliation Act, 1996 for being in contravention with the fundamental policy of Indian law and being vitiated by patent illegality appearing on the face of the award.
[Marine Craft Engineers (P) Ltd. v. Garden Reach Shipbuilders & Engineers Ltd., 2023 SCC OnLine Cal 807, order dated 05-04-2023]
*Judgment by Justice Moushumi Bhattacharya
Advocates who appeared in this case :
Mr. Sabyasachi Chowdhury, Mr. S.E. Huda, Mr. Arjun Mookherjee, Mr. Shreyaan Bhattacharyya, Mr. Avijit Guha Roy, Counsel for the Petitioner
Mr. Siddhartha Banerjee, Mr. B.K. Sen, Mr. Sudipta Nayan Ghosh, Mr. Soumajit Majumder, Ms. Jyoti Rauth, Counsel for the Respondent